The announcement on 25 October that the US is planning to introduce international reference pricing (IRP) on Medicare Part B medicines fell like a bombshell on the pharmaceutical industry.

The plan – which at once condemns other wealthy countries for “freeloading” on higher medicine prices in the US, and at the same time seeks to emulate the very pricing system that creates this freeloading – immediately met with widespread resistance from pharmaceutical company CEOs and the industry trade association PhRMA. Of immediate concern was the fact that the international price comparison that accompanied the release of the plan included low-priced countries such as Greece, Slovakia, Portugal and the Czech Republic – countries which clearly bear little comparison to the healthcare system and economic conditions of the United States. Slovakian prices, according to IHS Markit data, are normally just above 40% of the level in the United States. And the prospect of prices from economically stricken Greece trickling into the US, of course, is more than a daunting prospect for pharmaceutical companies – according to IHS Markit data, on average Greece features 15th in the global launch sequencing cycle for innovative branded pharmaceuticals, nearly 550 days on average after the first launch, which is typically the United States. Is this really who the United States should be comparing itself against?

The only saving grace for pharmaceutical companies here is that there is still significant uncertainty over the likelihood that an international pricing index (IPI) will actually be implemented in the United States. While potential controls over pharmaceutical pricing have significant bipartisan support, and Health Secretary Alex Azar has significant political capital on this topic, the actual implementation of IRP in the US faces some risks. Currently federal-level price negotiation for medicines is banned in the US. The IPI model proposal aims to bypass this by transferring responsibility for Medicare Part B drug sourcing and price negotiation to private companies. In theory, this means Congress would not be required to vote in support of lifting the federal negotiation ban. But even without congressional review, the IRP-based price setting model is likely to receive significant opposition from the pharma industry lobby in the US, and there is still wide-ranging uncertainty of the precise nature, scope and plausibility of the measure.

However, elsewhere, there were developments that may have more immediate, damaging impact on pharmaceutical companies. What received significantly less attention than the turbulence in the United States was the announcement a few days later in Greece that the government is proposing an adjustment of its own, existing international reference pricing formula. The reform moves the country from a system of referencing the average of the three lowest prices in the EU markets, to one references the lowest price – and we have seen from experience that this type of change often leads to substantial reductions in price. This is primarily because there are often isolated outliers in Europe on medicines, where unique circumstances in a particular country has resulted in a pharma company exceptionally accepting a lower price. In an IRP context, the impact of this low price is mitigated when referrer countries use average calculations – and this is entirely removed when the country only looks at the lowest price. Of course, through secondary and third-level IRP referencing, these low prices can circle around the world into higher-income, higher priced markets – 31 countries reference Greek prices.

The Greek reform is accompanied by some alleviating factors, such as less frequent price revisions for patented medicines, the removal of non-eurozone countries with low prices such as Poland, Romania and Croatia, and a more stable, less currency-driven system – but it has the potential to lead to far more damaging, immediate results for global pharmaceutical companies, and is highly likely to be adopted imminently. IHS Markit and SAS, through its IRP partnership, have together run a basic simulation of the impact of the Greece reform which concluded that there can be immediate lost revenues of $2.7m for a single product through the reform – but with an effective launch strategy in place, there is still an opportunity to make an additional $35m through optimised sequencing and planning.

However, the problems do not stop in Greece. This week, Denmark also announced changes to its IRP system, whereby its referencing rules will be applied to all hospital medicines. In the past, hospital-only companies which were not members of the Danish Association of the Pharmaceutical Industry (LIF) and who were therefore also not part of the voluntary price agreements, were exempt from IRP referencing. Like Greece, Denmark is one of the world’s most heavily referenced countries and hence its prices have a disproportionately large impact on the prices in other countries, particularly since Denmark typically features very early in the launch sequence. Furthermore, while Danish prices are typically not among the lowest in Europe, it is a non-Eurozone economy and as such can be subject to potential exchange rate volatility.

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We believe the last couple of weeks’ IRP changes highlight the dramatically evolving nature of this policy around the world. Clearly, IRP is firmly entrenched in the global pharmaceutical pricing scheme, and if anything is expanding its reach. This only serves to highlight the need for integrated, best-in-class solutions, which provide not just the very latest IRP rules (and potential changes to those rules), but also the best analytic technology.

If you have questions about what comes next, our analysts are available to talk through the ramifications of this announcement.

This piece was a collaboration between SAS and IHS Markit.